VA loan closing costs explained: What to expect and who pays

Qualifying for a VA loan gives you access to one of the strongest mortgage options out there. It makes homeownership more accessible with competitive interest rates and the possibility of no down payment, but the closing costs may be unexpected.

VA loan closing costs, while affordable, are distinct from a conventional mortgage’s expenses. Borrowers pay for a few of the usual fees, but others are omitted entirely or exclusive to the VA process. While these differences often work in your favor, understanding them in advance helps you avoid surprises and focus on your move.

Discover the key elements of VA closing costs and who pays them so you can maintain clarity at every step.

What are VA loan closing costs?

VA loan closing costs are the fees buyers pay to finalize a real estate transaction, separate from a home’s purchase price. They’re a combination of lender charges and third-party expenses for services like appraisal, title search, and the VA funding fee.

While they’re similar to typical closing costs, the VA prohibits certain charges to keep the process more affordable. For instance, VA borrowers aren’t allowed to pay attorney fees, so lenders must either waive the charge or another party must pay it, like the seller or real estate agent.

These loans are straightforward, but their cost transparency depends on your lender. With Better, you can access clear VA mortgages with competitive rates and no hidden fees. Get pre-approved in as little as three minutes with our smooth online application, and simplify the steps leading up to closing day.

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VA closing costs breakdown: How much are closing costs with a VA loan?

The average closing costs on a VA home loan are 3 – 5% of the total loan amount. This number isn’t the same for everyone and can shift based on the lender, your location, and the home’s value. 

VA closing costs generally fall into two groups: the funding fee and standard loan charges for activities like appraisals and title searches. Let’s break them down so you know what to expect.

VA funding fee

The VA funding fee is a one-time charge that most borrowers pay. It supports the program, keeps VA loans affordable to other service members, and reduces the cost for taxpayers. It’s calculated as 1.25 – 3.3% of your loan amount. Eligible borrowers receive lower rates for their first VA loan, and subsequent use of the benefit increases the percentage.

Buyers can pay this charge at closing or roll it into the loan, reducing up-front costs. Keep in mind that some borrowers don’t have to pay — certain factors waive the funding fee, like having a service-connected disability or receiving a Purple Heart.

Other VA closing costs

On top of the funding fee, there are a handful of other expenses common in any mortgage’s closing costs. Expect the following:

— Loan origination: The lender charges this fee to process and prepare your loan. The VA caps this expense at 1% of the loan amount. Lenders can charge a flat 1% fee or choose to itemize the costs as long as the total doesn’t exceed the limit.

— Appraisal: This covers VA appraisals that assess the home’s value and verify it has minimum property requirements, including safe wiring and potable water.

— Credit report fee: This pays for the lender to pull your credit report from the major bureaus. The VA allows this fee, but regulates it. Lenders must limit this cost to the exact invoice amount and cannot exceed $100.

— Title services: These costs include title search and insurance, and pay for the examination of public records and coverage against future unforeseen issues. These charges protect both you and the lender against defects and claims discovered after closing.

— Recording fee: This is a local government charge for adding your home purchase to public records.

— Survey costs: Depending on your home’s location, this fee is sometimes required to confirm property boundaries.

When will I learn the final closing costs for my VA loan?

Your total costs will be in your closing disclosure document, which lenders must provide at least three days before finalizing the transaction. Compare this statement to your lender’s initial loan estimate to check for discrepancies. This is simpler than it sounds, as the Consumer Finance Protection Bureau requires lenders to include any major changes. 

These documents are straightforward but can still be challenging to understand. Remember that you have three days before closing, so take your time, ask questions, and walk through each section with your lender.

Who’s responsible for closing costs on a VA loan?

The buyer is typically responsible for closing costs, but they can negotiate the allocation of the fees between themselves, the lender, and the seller. VA closing costs for buyers generally include the funding fee, appraisal, and title services. Lenders contribute in the form of “lender credits,” which reduce closing costs but increase the interest rates.

Sellers can contribute some costs, such as property taxes, to help ease the buyer’s up-front expenses. These are called seller concessions, and they’re a powerful way to elevate the deal in a buyer-friendly market.

Seller concessions

The VA sets a 4% cap on seller concessions, which are financial incentives that sellers aren’t required to pay but may choose to. This is higher than the 3% limit of a conventional transaction and allows sellers to assist buyers with expenses. 

These contributions encourage a fast sale and make the deal more attractive, especially in a buyer’s market. Common concessions are paying for title fees or home repairs found during inspection, but specific VA loan closing costs paid by the seller often include the funding fee.

Can closing costs be included in a VA loan?

Borrowers can often roll the VA funding fee into their loan, but they typically need to pay other closing costs up front. The only way to reduce the initial fee on other charges, like appraisals, is to negotiate seller concessions or lender credits.

If you fold the funding fee into your loan, keep in mind that this will increase your total mortgage amount, leading to higher monthly payments and more interest paid over time. Explore current VA loan rates to understand how additional fees might affect your monthly payments.

How are VA loan closing costs different from other mortgages?

VA loans are different from other mortgage options because they come with built-in protections and clear limits on what lenders can charge. A few of the biggest differences include:

— The origination fee is capped to protect buyers from excessive charges.

— There’s no private mortgage insurance requirement, as the VA backs these loans in case the borrower defaults.

— Certain costs are prohibited, including application and document preparation fees.

— It lowers overall costs due to government backing, which reduces interest rates and sometimes removes down payments.

Enjoy a smooth process with Better

Closing costs are a part of every mortgage, but VA loans stand out with flexible payment options and limits on potentially pricey fees. This structure supports veterans, service members, and their families, lightening the load financially.

You can make it even easier with Better. Our online platform offers a streamlined home buying process, from fast pre-approval to transparent loan rates. Apply in as little as three minutes and get an offer letter that strengthens every bid. Track your progress through each step, receive 24/7 support, and find your dream home stress-free.

Secure honest rates and peace of mind with Better.

...in as little as 3 minutes – no credit impact

FAQ

How does the VA 1% rule work?

The VA sets a limit on what lenders can charge for the origination fee, capping it at 1% of the total loan. This keeps the cost manageable and makes the process more consistent from one lender to another.

Do sellers see VA loans as less attractive?

Not typically, as many sellers consider VA loans dependable because they’re backed by the federal government. This reduces the seller’s risk if the buyer defaults.

However, keep in mind that some may hesitate due to the VA’s strict standards. For instance, if an appraisal turns up faulty wiring, the seller may be required to pay for repairs before the deal can go through.

Can VA loan closing costs be reduced?

Yes, buyers may be able to lower closing costs. Common methods include negotiating seller concessions or lender credits, securing closing cost assistance benefits, and seeking exemption from funding fees.